Delta CEO Says There's Record Demand for Premium Travel

Bloomberg

Watch Delta CEO Says There's Record Demand for Premium Travel - Bloomberg on Dailymotion

Transcript

00:00I am here in Atlanta, Georgia, with the CEO of Delta, Ed Bastion, here alongside me after that

00:05earnings report yesterday and that projection of 20% earnings per share growth in 2026.

00:11Now that you've had a day to digest, have you been surprised by the market's reaction and,

00:15frankly, by the lines of inquiry that you got yesterday?

00:18Not really. First of all, thank you for coming down. It's great to have you on our campus down

00:21here in Atlanta. There were a lot of expectations. We have a lot of momentum in our business.

00:27And as we're going into the year, we've seen the first part of the year, the momentum picked up yet

00:31again in the early days of January. And so as a result of that, I think our investor base was

00:38curious as to whether they see that momentum continuing to build, continuing to flatline,

00:43to bop around a little bit. And we just finished a year where we saw some pretty significant

00:48challenges, whether it was the Liberation Day impact on consumer sentiment, shutdown of the

00:54government and the airspace in the latter part of the year. So we wanted to make certain we had a

00:58little bit of wiggle room, some caution as to how we thought about projecting the year out. And so I

01:04think there was more inquiries to just how much caution is there and what could great look like,

01:11right? And so I think that's more of what we saw.

01:13So we'll get into what great could look like. Let's get into the caution and some of the things that

01:17are less foreseeable, including a proposed 10 percent cap on credit card rates. And it raises this

01:24question about the loyalty program at Delta, considering the fact that American Express and the

01:29partnership there contributed something like 14 percent, according to my calculations, of the

01:35revenue growth over the past year. I'm just wondering, how big of a hit is this? Have you started to map that

01:39out at all? I think it's early. I think it's premature. Listen, that's not our business. It's the

01:44financial services world and the banking climate. I think the banks that have already come out and

01:48spoken about it are expressing a tremendous amount of concern. So I understand it would require

01:54legislation is what I'm told. And we know the challenges of getting anything through Congress

02:00these days. I also think the knock on effects are pretty significant when you think about what seems

02:07to be maybe a good idea to help the lower income strata, given some income tax or some interest

02:14rate relief. The reality is, is going to eliminate their ability for credit and it's going to freeze

02:20up a tremendous amount of credit lines that the banks aren't going to be able to afford to provide. So

02:24I'm not it's not my business. Of course, we're going to work closely with American Express. The

02:30second factor is, is that Amex is a premium card provider. So that's really not the income level

02:36that we focus on in our business. At the same time, there is a sense that's a growing part of the

02:42revenues. We saw an 11 percent increase in the contribution that this particular aspect made to

02:48to Delta's revenues. I just wonder, how much do you expect that to grow? All things being equal,

02:54we're expecting a high single digit growth. You know, in the current year, we've been seeing double

02:58digit growth for the last several years. And it's a really important part of our business model. But I

03:03don't think it's something that we look back and start getting concerned. I think this said this idea has a lot of

03:10roadblocks and obstacles ahead of it. One thing that you said in an interview with the colleague

03:14talking about what could great look like is that effectively all the growth that you've seen so far

03:18has been from the premium cabin, not from the main cabin. Why do you think that is? Is it because of

03:23just incredible strength at the premium end? Or is it because of weakness in the main cabin? I think the

03:28main reason is the demand set for the premium seats and the premium product that we offer is at a

03:35continues to be at a record high. The more we look at the health of the consumer, we're talking about

03:40the K, we're at the top end of that K in terms of who our consumer is. And when you have a high demand

03:47set, that's what drives pricing strength. And that's what drives the growth that we've seen over

03:52the last several years. That said, on the main cabin, it's still a big part of our business. It's

03:57what pays the bills, I'd like to think of. And as we see some of the rationalization that's

04:03occurring because you have a lot of lower end airlines with low end seats, too many seats chasing

04:10still enough low end consumer demand that that space is where a lot of the rationalization you see it in

04:16the industry currently as that backdrop continues to get into a healthier environment because all those

04:24airlines have to find a way to earn their cost of capital. They're not going to be around. And so as a result of

04:30that, whatever happens there, we will benefit from that. And we'll keep that premium demand set growing. So

04:36what we're not growing in that space, but it'll still be be a good one for us in terms of

04:40improvement. You've talked about consolidation in the lower end of the industry and how you expect

04:44this to be a pretty big year of that as people try to justify their existence and survive. Would you play in

04:50that in any way? Would you make any acquisitions? We're not going to comment on that question. But you know,

04:54when you look at who Delta is, you can answer that question for yourself. Well, I guess that the other

05:00question is how much is the growth going to come from organic versus inorganic? Is there sort of a plan,

05:05especially given how much you've reduced leverage to really increase by acquisition some of your

05:10capacity? Well, when we look at that growth for us, international is a big part of our growth strategy.

05:16And we announced yesterday a big new order for the Boeing Dreamliner. We're very happy about that,

05:22excited about that. People think about our industry, they come to me, they say, where's the future

05:26for travel going to come from? We're 100 years old. It is international. When you think about only one

05:31in five people in the world have ever stepped foot on an airplane, that means you have to go new

05:36places, you have to find new opportunities to grow and expand. And that's going to be the statement of

05:41the second century of flight, I believe. It's about making the world a much more connected place than it

05:46is today. You know, this comes at a time, the international travel growth, that the rhetoric

05:51between countries has been incredibly heated and more about putting up walls. Are you concerned

05:56that that could have consequences and put barriers when you talk about the international travel and

06:02the growth that you're seeing in that sector? There have always been walls. There has always been

06:06in politics. There's, you know, when we look at the world today, we know the one thing that really

06:12does unite the world is when you can actually travel and see and experience and get to know people

06:16and you bring the countries physically closer together. So yes, there's, it's, it's not going

06:22to be a straight line up. You know, when in this business, we know there's a lot of turbulence in

06:26the sky, uh, not just in the business model sometimes, but when we actually do physically

06:32get connected back together and the world start, come a closer place, that's where real opportunity

06:37sits. You're talking about the demand so far this year, and you've seen, I believe, record demand

06:42so far in the first week and a half of January. I'm just wondering, is it mostly still coming from

06:48premium? Is it equal across all tiers? Is it also an economy to the same degree that you're seeing in

06:53terms of the robust interest at the top end? It continues to be at the top end. It continues to be in

06:58business. Uh, we're seeing double digit growth in business at the start of the year. Uh, we had our

07:02largest weekly sales in our history just last week, up double digits over the same week a year ago. So if this,

07:09this demand set continues, we're going to have a great year. So I have to end with this because my colleagues

07:14asked me to do this. The lounges, the regular lounges, not the Delta one. They're getting really crowded. How are you

07:21going to manage that considering that a lot of people have complaints about that? Well, we've been experiencing

07:25that for the last handful of years and it's a, uh, it's a problem with no good deed goes unpunished. You know, you build

07:30something great and everybody wants to be in there and there's not, not doesn't feel as exclusive any longer. Uh, we've been

07:36working through that for the last several years. American Express is our close partner on that.

07:39American Express is building lounges. We're building new lounges. We've got the Delta one lounges that

07:43are coming. We're going to continue to build more supply and more capacity to take care of all of our

07:48great customers.

Category

Transcript

Be the first to comment

Recommended